After the nationalisation of Northern Rock, with a possible burden on taxpayers of £100bn, attention needs to shift to the government's proposals (pdf) for avoidance of a similar crisis. These proposals are inadequate and will not succeed in averting the next crisis.

In the US, the authorities are investigating banks for possible accounting fraud, improperly securing loans and insider trading. The UK government proposals have been formulated without any investigation of the subprime crisis and the role of banking culture, accountants, auditors, business advisers and regulatory bodies.

The bailout of Northern Rock has created new moral hazards. Bank directors can continue to play selfish games with the full knowledge that the downside risks are covered. If the risky strategies pay off they and shareholders will collect huge rewards. If they fail, then the taxpayer will pick up the tab. Yet the Treasury's discussion paper (pdf) has no proposal for monitoring of business models, business plans, suitability of any financial instruments launched by banks, or making executives personally liable for developing toxic products.

The subprime crisis is the outcome of the organisational culture that prioritises secrecy, private profit and disdain for the general public. Banks are the masters of opaqueness and have used offshore structures to obfuscate their financial position. Many parcelled investments into specially created structured investment vehicles (SIVs) and parked them in offshore places like Cayman Islands which ask no questions and demand no transparency or accountability. Yet the UK government proposals are silent on the organisational culture of banks.

The nationalisation of Northern Rock and proposals for supporting distressed banks are based upon the claims that this would help to protect the interests of savers and employees. Yet there are no mechanisms to enable them to influence company policies. The only logical conclusion is to allow employees and savers to directly elect directors and call them to account. Such policies will be opposed by the Confederation of British Industry (CBI), but history shows that durable change had to be implemented in the teeth of opposition from organised corporate interests.

The banking industry's excesses have hurt millions of people but also enabled company executives to collect bumper paypackets. The typical tenure of a FTSE 100 CEO is less than four years and declining. During that short period, they seek to amass vast fortunes and are there is always a temptation to massage company profits. Major banks kept toxic debts off their balance sheet and front-loaded their profits, ie recognised more profits in the early years of the investments rather than recognising them evenly throughout the life of their investments. This boosted profits and executive remuneration. The executive remuneration system encourages irresponsible conduct, yet the government is silent.

Banking regulators will continue to fail. A major reason is that they are too close to the very interests that they are supposed to be regulating and too easily become cheerleaders rather than regulators. They unambiguously need to be on the side of the savers and taxpayers. The subprime activity was central to1980s Latin American banking crisis. Yet the regulators did not examine business model of major banks to consider the risks. The accounting rule makers are also captured by corporate interests and failed to develop any standard for transparency. Without a major overhaul of regulatory regime, the tide of banking crisis and sleaze cannot be stemmed.

Company auditors gave a clean bill of health to opaque accounts published by banks that provided little information about offshore activities, SIVs, bad debts or even the business model. In almost every case, to boost fees, auditors acted as advisers and consultants to banks and thus lacked the required independence to report objectively. Auditors (pdf) do not owe a "duty of care" to any individual shareholder, creditor, employee or depositors affected by their practices and thus lack economic incentives to deliver good audits. The only alternative is for the Bank of England and the Financial Services Authority to create its own dedicated team of auditors that report not only on financial statements but also on banking practices, products, solvency, business models, efficiency, effectiveness and fitness of trade as a bank. Such audits need to be conducted continuously not just at the end of the financial year.

The Treasury's consultation paper bemoans the lack of liquidity in the market, but fails to address the systemic reasons for this. Liquidity is low because the UK savings ratio is low - in fact after excluding the pension contributions it is negative. The savings ratio is low because income inequalities are widening. Rather than addressing the systemic crisis, the government has offered a blank cheque to rescue profligate banks.

The worst aspect of the government proposals is that future bank rescues are to be done in secrecy. There is something thoroughly worrying in that taxpayers' money may be spent without public knowledge or accountability. This at a time when secrecy, lack of transparency and accountability have been identified as key ingredients of the current crisis.